UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-Q
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ___________
Commission file number 0-21988
KAYE GROUP INC.
(Exact name of registrant as specified in charter)
Delaware 13-3719772
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
122 East 42nd Street, New York, N.Y. 10168
(Address of principal executive office)
(Zip code)
212-338-2100
(Registrant's telephone number, including area code)
---------------------------------------------
(Former name, former address and former fiscal
year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes _X_ No __
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of November 5, 1999 - 8,466,045
- - Total number of pages filed including cover and under pages 26 - Exhibit index
is located on page 20
<PAGE>
KAYE GROUP INC.
INDEX
PAGE NO.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at
September 30, 1999 and December 31, 1998 3
Consolidated Statements of Income for the
three months and nine months ended September 30, 1999 and 1998 5
Consolidated Statements of Cash Flows for the
Nine months ended September 30, 1999 and 1998 7
Consolidated Statements of Comprehensive Income for the
three months and nine months ended September 30, 1999 and 1998 8
Notes to Unaudited Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13
Year 2000 Compliance 18
Safe Harbor Disclosure 19
PART II OTHER INFORMATION 19
2
<PAGE>
Item 1. - Financial Statements
KAYE GROUP INC.
CONSOLIDATED BALANCE SHEETS
September 30, 1999 and December 31, 1998
(in thousands, except par value per share)
<TABLE>
<CAPTION>
1999 1998
-------- --------
(UNAUDITED)
<S> <C> <C>
ASSETS
INSURANCE BROKERAGE COMPANIES:
Current assets:
Cash and cash equivalents
(including short term investments, and funds held in a fiduciary
capacity of $20,065 and $33,218) $ 22,133 $ 34,267
Premiums and other receivables 18,126 40,572
Prepaid expenses and other assets 1,969 1,895
-------- --------
Total current assets 42,228 76,734
Fixed assets (net of accumulated depreciation of $6,566 and $5,662) 3,557 3,683
Intangible assets (net of accumulated amortization of $3,691 and $2,750) 10,321 6,795
Deferred income taxes 816
Other assets 200 205
-------- --------
Total assets - insurance brokerage companies 56,306 88,233
-------- --------
PROPERTY AND CASUALTY COMPANIES:
Investments available-for-sale:
Fixed maturities, at market value (amortized cost: 1999, $44,779;
1998, $42,980) 44,242 43,597
Equity securities, at market value (cost:1999, $3,198; 1998, $696) 3,235 782
Short term investments, at cost, which approximates market value 5,930 2,950
-------- --------
Total investments 53,407 47,329
Cash and cash equivalents 8,747 10,806
Accrued interest and dividends 934 961
Premiums receivable 1,260 2,644
Premiums receivable - insurance brokerage companies 75 3,041
Reinsurance recoverable on unpaid losses and loss expenses 4,232 3,220
Deferred acquisition costs 3,003 3,921
Deferred income taxes 1,278 586
Intercompany note receivable 3,000
Intercompany receivable 508
Other assets 2,968 2,466
-------- --------
Total assets - property and casualty companies 78,904 75,482
-------- --------
CORPORATE:
Cash and cash equivalents 339 370
Prepaid expenses and other assets 203 248
Investments:
Equity securities, at market value (cost:1999, $250, and 1998, $497) 250 615
Intercompany receivable 2,965 2,118
-------- --------
Total assets - corporate 3,757 3,351
-------- --------
Total assets $138,967 $167,066
======== ========
</TABLE>
See notes to unaudited consolidated financial statements
3
<PAGE>
Item 1. - Financial Statements (continued)
KAYE GROUP INC.
CONSOLIDATED BALANCE SHEETS
September 30, 1999 and December 31, 1998
(in thousands, except par value per share)
<TABLE>
<CAPTION>
1999 1998
--------- ---------
(UNAUDITED)
<S> <C> <C>
LIABILITIES
INSURANCE BROKERAGE COMPANIES:
Current liabilities:
Premiums payable $31,831 $59,472
Premiums payable - property and casualty companies 75 3,041
Accounts payable and accrued liabilities 8,179 9,045
Notes payable 431 718
Deferred income taxes 61 978
Intercompany payable 1,340 2,626
--------- ---------
Total current liabilities 41,917 75,880
Notes payable 969 1,369
Intercompany note payable 3,000
Other liabilities 367 1,005
--------- ---------
Total liabilities-insurance brokerage companies 46,253 78,254
--------- ---------
PROPERTY AND CASUALTY COMPANIES:
Liabilities:
Unpaid losses and loss expenses 23,930 21,567
Unearned premium reserves 9,745 12,327
Accounts payable and accrued liabilities 7,915 7,451
Intercompany payable 1,625
Other liabilities 104 143
--------- ---------
Total liabilities - property and casualty companies 43,319 41,488
--------- ---------
CORPORATE:
Current liabilities:
Accounts payable and accrued liabilities 402 511
Loan payable 1,217 1,153
Deferred income taxes 78 20
Income taxes payable 150 568
--------- ---------
Total current liabilities 1,847 2,252
Loan payable-long-term 2,390 3,303
--------- ---------
Total liabilities-corporate 4,237 5,555
--------- ---------
Total liabilities 93,809 125,297
========= =========
COMMITMENTS AND CONTINGENCIES:
STOCKHOLDERS' EQUITY:
Preferred stock, $1.00 par value; 1,000 shares authorized;
none issued or outstanding
Common stock, $.01 par value; 20,000 shares authorized;
shares issued and outstanding (1999, 8,471; 1998, 8,474) 85 85
Paid - in capital 18,019 17,942
Accumulated other comprehensive income, net of deferred
income tax (benefit) liability (1999, ($170); 1998, $280) (330) 541
Unamortized restricted stock compensation (259)
Retained earnings 27,771 23,201
Treasury stock, 15 shares at cost (128)
--------- ---------
Total stockholders' equity 45,158 41,769
========= =========
Total liabilities and stockholders' equity $138,967 $167,066
========= =========
</TABLE>
See notes to unaudited consolidated financial statements
4
<PAGE>
Item 1. - Financial Statements (continued)
KAYE GROUP INC.
CONSOLIDATED STATEMENTS OF INCOME
For the three months and nine months ended September 30, 1999 and
1998 (in thousands, except per share amounts)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------- ------------------------
1999 1998 1999 1998
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
INSURANCE BROKERAGE COMPANIES
Revenues:
Commissions and fees - net $ 8,660 $ 9,525 $ 27,240 $ 25,144
Investment income 509 657 1,114 1,539
-------- -------- -------- --------
Total revenues 9,169 10,182 28,354 26,683
-------- -------- -------- --------
Expenses:
Salaries and benefits 5,492 5,289 17,279 15,920
Amortization of intangibles 313 171 941 445
Other operating expenses 3,014 3,475 9,500 9,698
-------- -------- -------- --------
Total operating expenses 8,819 8,935 27,720 26,063
-------- -------- -------- --------
Interest expense 209 21 553 21
-------- -------- -------- --------
Income before income taxes-insurance brokerage companies 141 1,226 81 599
======== ======== ======== ========
PROPERTY AND CASUALTY COMPANIES
Revenues:
Net premiums written 7,893 7,069 16,932 15,146
Change in unearned premiums (1,089) (812) 2,801 3,387
-------- -------- -------- --------
Net premiums earned 6,804 6,257 19,733 18,533
Net investment income 734 729 2,168 2,198
Net realized (loss) gain on investments (76) 49 (96) 82
Other income 18 3 53 130
-------- -------- -------- --------
Total revenues 7,480 7,038 21,858 20,943
-------- -------- -------- --------
Expenses:
Losses and loss expenses 2,490 2,175 6,786 6,748
Acquisition costs and general and administrative expenses 2,547 2,644 7,422 6,872
-------- -------- -------- --------
Total expenses 5,037 4,819 14,208 13,620
-------- -------- -------- --------
Income before income taxes-property and casualty companies 2,443 2,219 7,650 7,323
======== ======== ======== ========
CORPORATE
Revenues:
Net investment income (loss) (50) 10 209 (39)
Expenses:
Other operating expenses 102 33 297 233
Interest expense 80 98 244 349
-------- -------- -------- --------
Net expenses before income taxes-corporate (232) (121) (332) (621)
======== ======== ======== ========
</TABLE>
See notes to unaudited consolidated financial statements
5
<PAGE>
Item 1. - Financial Statements (continued)
KAYE GROUP INC.
CONSOLIDATED STATEMENTS OF INCOME
For the three months and nine months ended September 30, 1999 and
1998 (in thousands, except per share amounts)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------ ------------------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Income before income taxes 2,352 3,324 7,399 7,301
------- ------- ------- -------
Provision (benefit) for income taxes
Current 872 1,032 2,479 2,147
Deferred (243) (4) (285) 153
------- ------- ------- -------
Total provision for income taxes 629 1,028 2,194 2,300
------- ------- ------- -------
Net income $1,723 $2,296 $5,205 $5,001
======= ======= ======= =======
EARNINGS PER SHARE
Basic $0.20 $0.27 $0.62 $0.59
======= ======= ======= =======
Diluted $0.20 $0.27 $0.60 $0.58
======= ======= ======= =======
Weighted average of shares outstanding - basic 8,460 8,474 8,460 8,474
======= ======= ======= =======
Weighted average shares outstanding and
share equivalents outstanding - diluted 8,655 8,591 8,621 8,594
======= ======= ======= =======
</TABLE>
See notes to unaudited consolidated financial statements
6
<PAGE>
Item 1. - Financial Statements (continued)
KAYE GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 1999 and 1998
(in thousands)
UNAUDITED
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $5,205 $5,001
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Deferred acquisition costs 918 1,137
Amortization of bond premium - net 494 488
Deferred income taxes (285) 153
Net realized loss (gains) on investments 363 (22)
Depreciation and amortization expense 1,864 1,202
Change in assets and liabilities:
Accrued interest and dividends 27 11
Premiums and other receivables 25,752 (12,005)
Prepaid expenses and other assets (646) (783)
Premiums payable (30,646) 22,868
Accounts payable and accrued liabilities (546) 446
Unpaid losses and loss expenses 2,363 1,862
Unearned premium reserves (2,582) (3,584)
Income taxes payable (418) 282
-------- --------
Net cash provided by operating activities 1,863 17,056
======== ========
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments available - for - sale :
Purchase of fixed maturities (10,543) (7,161)
Purchase of equity securities (3,349) (200)
Purchase of short term investments (2,980) (300)
Maturities of fixed maturities 4,309 3,982
Sales of fixed maturities 3,938 7,852
Sales of equity securities 801 425
Purchase of fixed assets (778) (1,656)
Acquisition payments (4,414) (1,294)
Funds held under deposit contracts:
Sales of short term investments 173
-------- --------
Net cash provided by (used in) investing activities (13,016) 1,821
======== ========
CASH FLOWS FROM FINANCING ACTIVITIES:
Acquisition debt-repayment (375)
Notes and loan payable-repayment (1,161) (7,638)
Proceeds from issuance of common stock 35
Acquisition of treasury stock (935)
Payment of dividends (635) (637)
Proceeds from borrowings 5,839
Payments under deposit contracts (122)
-------- --------
Net cash used in financing activities (3,071) (2,558)
======== ========
NET CHANGE IN CASH AND CASH EQUIVALENTS (14,224) 16,319
Cash and cash equivalents at beginning of period 45,443 31,307
======== ========
Cash and cash equivalents at end of period $31,219 $47,626
======== ========
Supplemental cash flow disclosure:
Interest expense $615 $328
Income taxes $2,897 $1,866
Noncash financing activity:
Reissuance of treasury stock for an acquisition $585
Reissuance of treasury stock under the restricted stock plan $222
</TABLE>
See notes to consolidated financial statements
7
<PAGE>
KAYE GROUP INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the three months and nine months ended September 30, 1999 and 1998
(in thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
NET INCOME $1,723 $2,296 $5,205 $5,001
Other comprehensive income:
Unrealized (depreciation) appreciation of investments
available -for-sale, net of deferred income tax (benefit)
liability (1999, ($141), ($557); 1998, $142, $108) (273) 274 (1,079) 209
Less: reclassification adjustment for loss (gains) included
in net income, net of deferred income tax benefit (liability)
(1999, $45, $107; 1998, ($17), ($7)) 88 (32) 208 (14)
------- ------- ------- -------
Total other comprehensive income (185) 242 (871) 195
------- ------- ------- -------
COMPREHENSIVE INCOME $1,538 $2,538 $4,334 $5,196
======= ======= ======= =======
</TABLE>
See notes to unaudited consolidated financial statements
8
<PAGE>
ITEM 1. - Financial Statements (continued)
KAYE GROUP INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1) General
The consolidated financial statements as of September 30, 1999 and for the
three months and nine months ended September 30, 1999 and 1998 are unaudited,
have been prepared in accordance with generally accepted accounting principles
and, in the opinion of management, reflect all adjustments (consisting of
normal, recurring adjustments) necessary for a fair presentation of the results
for such periods. The results of operations for the three months and nine months
ended September 30, 1999 are not indicative of results for the full year.
These financial statements should be read in conjunction with the financial
statements and related notes in the Company's 1998 Form 10-K. The December 31,
1998 Consolidated Balance Sheet was derived from audited financial statements,
but does not include all disclosures required by generally accepted accounting
principles.
Certain prior year information has been reclassified to conform with the
current year presentation.
2) Business Segments
Kaye Group Inc. (the "Company"), a Delaware corporation, is a holding
company which, through its subsidiaries, is engaged in a broad range of
insurance brokerage, underwriting and related activities. The Company operates
in two insurance business segments - the Insurance Brokerage Companies
Operations comprised of the Retail Brokerage Business and the Program Brokerage
Business, and the Property and Casualty Companies Operations ("Property and
Casualty Companies" or "Insurance") comprised of the Insurance Companies and
Claims Administration Corporation.
The Insurance Brokerage Companies derive their revenue principally from
commissions associated with the placement of insurance coverage for corporate
clients. These commissions are paid by the insurance carriers and are usually a
fixed percentage of the total premiums. Certain of these commissions are
contingent upon the level of volume and profitability of the related coverage to
the insurance companies. There is normally a lag between receipt of funds from
the insured and payment to the insurance company. Investment of these funds over
this period generates additional revenue in the form of interest income.
The Insurance business underwrites property and casualty risks for insureds
in the United States and is sold principally through specially designed
Programs, covering various types of businesses and properties which have similar
risk characteristics. The Insurance business generally underwrites the first
layer of insurance under the Programs and unaffiliated Program insurers provide
coverage for losses above the first layer of risk. Substantially all of the
Insurance business revenues are derived from premiums on this business, plus the
investment income generated by the investment portfolio of the Insurance
business.
9
<PAGE>
Corporate Operations include those activities that benefit the Company in
its entirety and cannot be specifically identified to either the Insurance
Brokerage Companies or the Property and Casualty Companies. Such activities
primarily include debt servicing and public company expenses, including investor
relations. In addition, Corporate Operations include an investment in Arista
Investors Corp.
The identifiable segment assets, operating profits and income before income
taxes are shown on the accompanying Consolidated Balance Sheets and Statements
of Income. The following table is a summary of certain other segment information
for the three months and nine months ended September 30, 1999 and 1998:
<TABLE>
<CAPTION>
Business Segments - 1999
- -------------------------------------------------------------------------------------------------------------------
3 months ended Sept.30, 1999 9 months ended Sept. 30, 1999
---------------------------- -----------------------------
Insurance Property & Insurance Property &
(in thousands) Brokerage Casualty Brokerage Casualty
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue from external sources $7,612 $6,804 $25,043 $19,733
Revenue from other segments 1,048 18 2,197 53
Depreciation expense 328 4 904 14
Amortization expense 313 2,115 941 6,098
Capital expenditures 301 778
Business Segments - 1998
- -------------------------------------------------------------------------------------------------------------------
3 months ended Sept. 30, 1998 9 months ended Sept.30, 1998
----------------------------- -----------------------------
Insurance Property & Insurance Property &
(in thousands) Brokerage Casualty Brokerage Casualty
- -------------------------------------------------------------------------------------------------------------------
Revenue from external sources $8,292 $6,257 $22,772 $18,533
Revenue from other segments 1,233 17 2,372 52
Depreciation expense 275 6 740 16
Amortization expense 171 1,953 445 5,728
Capital expenditures 420 1,656
</TABLE>
3) Loan Payable
On June 23, 1998, the Company paid in full the $6,094,000 bank revolving
line of credit, and replaced it with a $5,000,000 term loan (the "Loan") with
another bank. The Loan is collateralized by the stock of the Property and
Casualty Companies. The Loan bears interest at a fixed rate per year of 7.8%. At
September 30, 1999, $3,607,000 was outstanding under the Loan. In addition, the
Company has available a $4,500,000 revolving line of credit with the same bank,
also collateralized by the stock of the Property and Casualty Companies. The
proceeds are available for general operating needs and acquisitions. As of
September 30, 1999, no amount was outstanding on the revolving line of credit. A
quarterly fee is assessed in the amount of 0.05% on the unused balance. Among
other covenants, the Loan agreement requires maintenance of minimum consolidated
GAAP net worth, statutory surplus, ratio of net premiums written to surplus, and
minimum debt service coverage. As of September 30, 1999, the Company was in
compliance with the covenants of the Loan agreement.
10
<PAGE>
The Company's required principal payments on the Loan for the respective
years are $296,000 in 1999, $1,241,000 in 2000, $1,343,000 in 2001, and $727,000
in 2002. Interest expense for the loans mentioned above for the three months and
nine months ended September 30, 1999 and 1998 were $80,000 and $244,000 for
1999, respectively, and $98,000 and $349,000 for 1998, respectively.
4) Treasury Stock
In December 1998, the Board of Directors authorized the repurchase, at
management's discretion, of up to 300,000 shares of the Company's Common Stock.
The Company's repurchases of shares of Common Stock are recorded as treasury
stock and result in a reduction of stockholders' equity. When treasury shares
are reissued the Company uses a first-in, first-out method and the excess of
reissuance price over repurchase cost is treated as an increase of paid-in
capital. Net purchases of treasury stock for the nine months ended September 30,
1999 amounted to 15,307 shares at a cost of approximately $128,000.
5) Stock Performance Plan
During July 1999, the Company awarded 34,000 shares of restricted stock
from shares previously granted under the Stock Performance Plan to certain key
employees. The market value of these shares awarded totaled $264,000 and has
been recorded as unamortized restricted stock compensation (net of amortization)
as a separate component of stockholders' equity. Unearned compensation is being
amortized to expense on a straight line basis over the remaining vesting period.
6) Earnings Per Share
Earnings per common share has been computed below in accordance with SFAS
No. 128, based upon weighted average common and dilutive shares outstanding (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net income (numerator) $1,723 $2,296 $5,205 $5,001
------ ------ ------ ------
Weighted average common shares and effect
of dilutive shares used in the
computation of earnings per share:
Average shares outstanding-basic 8,460 8,474 8,460 8,474
Effect of dilutive shares 195 117 161 120
------ ------ ------ ------
Average shares outstanding-diluted
(denominator) 8,655 8,591 8,621 8,594
------ ------ ------ ------
Earnings per common share:
Basic $0.20 $0.27 $0.62 $0.59
Diluted $0.20 $0.27 $0.60 $0.58
</TABLE>
11
<PAGE>
7) Dividends
On September 20, 1999, the Board of Directors declared a quarterly dividend
of $.025 per share, payable October 20, 1999 to stockholders of record on
September 30, 1999.
8) Contingent Liabilities
In the ordinary course of business, the Company and its subsidiaries are
subject to various claims and lawsuits in connection with the placement of
insurance. In the opinion of management, the ultimate resolution of all asserted
and potential claims will not have a material adverse effect on the consolidated
financial position of the Company.
9) Acquisition
Effective January 1, 1999, the Company, through its insurance brokerage
subsidiary, Kaye Insurance Associates, Inc., purchased the assets, including
customer lists, and certain liabilities of Woodbury, N.Y. - based broker Seaman,
Ross & Wiener, Inc. ("SRW") and related entities for an initial purchase price
of $2,430,000 in cash and $500,000 in stock of the Company. Additional payments
of $1,400,000 in cash and $84,000 in stock of the Company have been made through
September 30, 1999. The total purchase price is contingent on future billings
related to the acquired customer lists and will increase significantly from the
initial purchase price. This acquisition is being accounted for using the
purchase method of accounting. Accordingly, intangible assets (including
customer lists) of approximately $4.4 million, resulting from the allocation of
the preliminary purchase price and payments made through September 30, 1999, are
being amortized by using the straight-line method over a period of not more than
fifteen years.
The above acquisition has been included in the Company's consolidated
financial statements from the effective date. The following unaudited pro forma
summary presents the consolidated results of operations of the Company as if the
SRW acquisition had occurred on January 1, 1998. The pro forma results are shown
for illustrative purposes only and do not purport to be indicative of the
results which would have been reported if the acquisition had occurred on the
dates indicated or which may occur in the future.
<TABLE>
<CAPTION>
Unaudited
Three Months Ended Nine Months Ended
September 30, September 30,
------------ ------------
(in thousands except per share amounts)
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Pro forma revenues - Insurance Brokerage Companies $9,169 $10,964 $28,354 $29,267
Pro forma net income $1,723 $2,337 $5,205 $5,358
Pro forma earnings per share - basic $0.20 $0.28 $0.62 $0.63
Pro forma earnings per share- diluted $0.20 $0.27 $0.60 $0.62
</TABLE>
12
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
Kaye Group Inc. (the "Company"), a Delaware corporation, is a holding
company which, through its subsidiaries, is engaged in a broad range of
insurance brokerage, underwriting and related activities. The Company operates
in two insurance business segments - the Insurance Brokerage Companies
Operations comprised of the Retail Brokerage Business and the Program Brokerage
Business, and the Property and Casualty Companies Operations ("Property and
Casualty Companies" or "Insurance") comprised of the Insurance Companies and
Claims Administration Corporation.
Overview
The Insurance Brokerage Companies derive their revenue principally from
commissions associated with the placement of insurance coverage for corporate
clients. These commissions are paid by the insurance carriers and are usually a
fixed percentage of the total premiums. Certain of these commissions are
contingent upon the level of volume and profitability of the related coverage to
the insurance companies. There is normally a lag between receipt of funds from
the insured and payment to the insurance company. Investment of these funds over
this period generates additional revenue in the form of interest income.
The Insurance business underwrites property and casualty risks for insureds
in the United States and is sold principally through specially designed
Programs, covering various types of businesses and properties which have similar
risk characteristics. The Insurance business generally underwrites the first
layer of insurance under the Programs and unaffiliated Program insurers provide
coverage for losses above the first layer of risk. Substantially all of the
Insurance business revenues are derived from premiums on this business, plus the
investment income generated by the investment portfolio of the Insurance
business.
Corporate Operations include those activities that benefit the Company in
its entirety and cannot be specifically identified to either the Insurance
Brokerage Companies or the Property and Casualty Companies. Such activities
primarily include debt servicing and public company expenses, including investor
relations. In addition, Corporate Operations include an investment in Arista
Investors Corp. ("Arista").
Results of Operations
Three months ended September 30, 1999 compared with three months ended September
30, 1998
Net Income
Net Income for the three months ended September 30, 1999 decreased by
$573,000 to $1,723,000 or basic earnings per share of $0.20 compared to
$2,296,000 or $0.27 for the same period last year as explained below.
13
<PAGE>
Insurance Brokerage Companies
Income before income taxes decreased by $1,085,000 to $141,000 in 1999 from
$1,226,000 in 1998. The lower operating result was primarily due to lower
revenues, as discussed below.
Total revenues in 1999 were $9,169,000 compared with $10,182,000 in 1998, a
decrease of $1,013,000 (10%). Gross commissions and fees were lower by $337,000
(3%) as a result of lost business (primarily the Combined Coordinating Council,
Inc. {"CCC"} account) exceeding new business ($1,968,000) and acquisitions
($933,000). On July 13, 1999, the Company reported that effective July 1, 1999
it no longer served as primary insurance broker for CCC. CCC is a New York City
- - based risk management service organization for several metropolitan area
hospitals, and had been one of the Company's largest accounts. The commission
expense rate (defined as commissions incurred to independent producers as a
percentage of gross commissions and fees) to produce new and renewal business
increased from 19% to 24% which resulted in a decrease in net commissions and
fees of $555,000. Investment income decreased by $148,000 (23%) primarily due to
lower fiduciary investments as a result of certain lost business.
Salaries and benefits increased by $203,000 (4%) to $5,492,000 in 1999
compared to $5,289,000 in 1998. The increase was the result of acquisitions and
salary increments, offset partially by headcount reductions.
Amortization of intangibles increased by $142,000 (83%) to $313,000 in 1999
compared with $171,000 in 1998 due to amortization of acquisition related
intangibles on 1998 and 1999 acquisitions.
Other operating expenses decreased by $461,000 (13%) to $3,014,000 from
$3,475,000. The decrease was mainly due to reduced consulting expenses offset by
acquisitions.
Interest expense increased by $188,000 as a result of acquisition
indebtedness and a related note payable to the Property and Casualty Companies.
Property and Casualty Companies
Income before income taxes increased by $224,000 (10%) to $2,443,000 in
1999 from $2,219,000 in 1998. This increase was due to an increase in net
premiums earned and a decrease in acquisition costs and the general
administrative expense ratio offset by an increase in the loss ratio.
Net premiums earned for 1999 increased by $547,000 (9%) to $6,804,000 from
$6,257,000 in 1998. The Company's efforts to develop new Alternative Risk
Transfer programs and broaden the distribution network of existing programs and
coverage types has contributed to the growth of premium volume.
Net investment income increased by $5,000 (1%) to $734,000 in 1999 from
$729,000 in 1998. The increase was due to an increase in investments.
14
<PAGE>
A net realized loss of $76,000 was incurred in 1999 compared to net
realized gains of $49,000 in 1998. This realized loss was primarily due to a
decrease in fair value of a private equity investment.
The loss ratio (loss incurred expressed as a percentage of premiums earned)
increased to 37% in 1999 from 35% in 1998. The increase was due to an increase
in loss and loss expenses in assumed general liability programs which
traditionally experience a higher loss frequency.
The acquisition costs and general and administrative expenses ratio was 37%
and 42% for 1999 and 1998, respectively. The decrease was due to a decrease in
management fees.
Corporate
Net expenses before income taxes increased in 1999 by $111,000 to $232,000
from $121,000 in 1998 primarily due to a reduction in the fair market value of
the Company's investment in Arista Investors Corp. which was accounted for in
net investment income, as well as an increase in operating expenses.
Provision for Income Taxes
The provision for income taxes for 1999 and 1998 was $629,000 and
$1,028,000, respectively. The 1999 provision reflects an adjustment to match the
tax rate on the Company's income tax returns resulting in an effective tax rate
of 27% and 31% for 1999 and 1998, respectively.
Nine months ended September 30, 1999 compared with nine months ended September
30, 1998
Net Income
Net Income for the nine months ended September 30, 1999 increased by
$204,000 to $5,205,000 or basic earnings per share of $0.62 compared to
$5,001,000 or $0.59 for the same period last year as explained below.
Insurance Brokerage Companies
Income before income taxes decreased by $518,000 to $81,000 in 1999 from
$599,000 in 1998. The reduced operating result was primarily due to increased
expenses offset by an increase in commissions and fees, as discussed below.
Total revenues in 1999 were $28,354,000 compared with $26,683,000 in 1998,
an increase of $1,671,000 (6%). Gross commissions and fees grew by $3,777,000
(13%) as a result of new business ($5,411,000) and acquisitions ($4,483,000)
exceeding lost business. The commission expense rate (defined as commissions
incurred to independent producers as a percentage of gross commissions and fees)
to produce new and renewal business increased from
15
<PAGE>
16% to 19% which resulted in a decrease in net commissions and fees of $923,000.
Investment income decreased by $425,000 (28%) primarily due to lower fiduciary
investments as a result of certain lost business.
Salaries and benefits increased by $1,359,000 (9%) to $17,279,000 in 1999
compared to $15,920,000 in 1998. The increase was the result of acquisitions and
salary increments offset partially by headcount reductions.
Amortization of intangibles increased by $496,000 (111%) to $941,000 in
1999 compared with $445,000 in 1998 due to amortization of acquisition related
intangibles on 1998 and 1999 acquisitions.
Other operating expenses decreased by $198,000 (2%) to $9,500,000 in 1999
compared with $9,698,000 in 1998.
Interest expense increased by $532,000 as a result of acquisition
indebtedness and a related note payable to the Property and Casualty Companies.
Property and Casualty Companies
Income before income taxes increased by $327,000 (4%) to $7,650,000 in 1999
from $7,323,000 in 1998. The increase was due to an increase in net premiums
earned together with a decrease in the loss ratio.
Net premiums earned for 1999 increased by $1,200,000 (6%) to $19,733,000
from $18,533,000 in 1998. The Company's efforts to develop new Alternative Risk
Transfer programs and broaden the distribution network of existing programs and
coverage types has contributed to the growth of premium volume.
Net investment income decreased by $30,000 (1%) to $2,168,000 in 1999 from
$2,198,000 in 1998. The decrease was due to a decrease in investments and a
change in the mix of bonds and equities.
The loss ratio (loss incurred expressed as a percentage of premiums earned)
decreased to 34% in 1999 from 36% in 1998. The decrease was due to lower loss
and loss expenses under the property programs offset by an increase in assumed
general liability losses which traditionally experience a higher loss frequency.
The acquisition costs and general and administrative expense ratio was 38%
and 37% for 1999 and 1998, respectively. Exclusive of bad debt recovered in
1998, the ratio would have been 38% for both years.
Corporate
Net expenses before income taxes decreased in 1999 by $289,000 to $332,000
from $621,000 in 1998. The segment's sole investment in Arista Investors Corp.
was reduced due to an initial liquidating distribution. Arista's management has
indicated its intention to sell its remaining asset, its license to operate, and
its stock. This initial liquidating distribution, partially
16
<PAGE>
offset by the corresponding reduction in fair market value of Arista stock, was
accounted for in net investment income and is the primary reason for the
positive variance along with lower interest expense due to the June 1998
restructuring of corporate debt.
Provision for Income Taxes
The provision for income taxes for 1999 and 1998 was $2,194,000 and
$2,300,000, respectively. The 1999 provision reflects an adjustment to match the
tax rate on the Company's income tax returns resulting in an effective tax rate
of 30% and 32% for 1999 and 1998, respectively.
Financial Condition and Liquidity
Management believes that the Company's operating cash flow, along with the
cash equivalents and short term investments will provide sufficient sources of
liquidity and capital to meet the Company's anticipated needs during the next
twelve months and the foreseeable future. The Company has no capital commitments
that are material individually or in the aggregate.
Total assets decreased by $28,099,000 (17%) to $138,967,000 at September
30, 1999 from $167,066,000 at December 31, 1998. Total liabilities decreased by
$31,488,000 (25%) to $93,809,000 at September 30, 1999 from $125,297,000 at
December 31, 1998. Due to the cyclical nature of the business, premiums
receivable and premiums payable fluctuate significantly from period to period.
Lower third quarter 1999 billings compared to the fourth quarter 1998 accounted
for lower fiduciary cash, premiums and other receivables, and premiums payable.
Stockholders' equity increased by $3,389,000 (8%) to $45,158,000 at
September 30, 1999, from $41,769,000 at December 31, 1998. The increase in
equity resulted from net income of $5,205,000 and $35,000 for shares issued
related to the exercise of options, offset by an increase in net unrealized
depreciation of investments of $871,000, dividends paid of $635,000, $128,000
for net purchases of treasury stock, and $217,000 related to shares issued for
the restricted stock plan net of amortization.
The Company maintains a substantial level of cash and liquid short term
investments which are used to meet anticipated payment obligations, primarily
premiums payable to insurance markets. As of September 30, 1999, the Company had
cash and short term investments of $31,219,000. Of the Company's total
investments, certain amounts are pledged or deposited into trust funds to
collateralize the Company's obligations under reinsurance agreements.
The Company's cash and cash equivalents decreased by $14,224,000 for the
nine months ended September 30, 1999. Operating activities provided cash of
$1,863,000. Investing activities used cash of $13,016,000 primarily for the
purchase of investments and acquisition payments. Financing activities used cash
of $3,071,000 for payments of dividends, loan repayments and treasury stock
purchases.
17
<PAGE>
Year 2000 Compliance
Many computers, software programs and microprocessors embedded in certain
equipment (collectively, "systems") were designed to accommodate only two-digit
date fields to represent a given year (e.g., "98" represents 1998). It is
possible that such systems will not be able to accurately process data
containing information relating to dates before, during or after the year 2000.
It is possible that such systems could fail entirely, although in many instances
the consequences of a system not being "year 2000 compliant" are unknown. In
response to this issue, the Company has evaluated its applications and operating
software and is in the process of evaluating its hardware and software products,
end user computing activities, third-party data exchanges and business
relationships, and has established a project team responsible for overseeing
progress on the Company's compliance program and periodically reporting to
management.
As of September 30, 1999 the Company has completed approximately 97% of its
efforts to bring its own applications software and hardware in compliance, with
the objective of having all critical production systems year 2000 compliant by
the end of November 1999. Testing of critical applications has been accomplished
through the use of a special system testing environment that simulates system
operations in the year 2000. The Company also purchased and implemented new
operational and accounting software in 1998. In addition to being year 2000
compliant, these new systems are intended to add increased functionality to the
Company. The Company has completed its assessment of its servers and client
server operating software. The results of this assessment were identification of
hardware and software issues requiring remediation in order to assure year 2000
compliance.
The total cost (both current and future) to modify these existing
production systems, which includes both internal and external costs of
programming, coding and testing is estimated to be $448,000 and has been
reflected in the financial statements.
In addition to addressing hardware/software information technology ("IT"),
the Company has also been assessing year 2000 issues with respect to non-IT
systems such as telephones and various building services which may rely on
embedded microprocessors. Failure of non-IT systems such as telephone service
could disrupt the Company's business. The Company's communications with the
relevant vendors have identified voicemail system year 2000 problems which will
be brought into compliance by the end of November 1999.
The Company believes that if systems were not compliant for year
2000-related problems there could be a material adverse impact on the Company's
financial statements. The Company believes that it is taking the necessary
measures to address issues that may arise relating to year 2000-related problems
and that its systems should be compliant. The Company realizes, however, that
non-compliance by these parties could impact its business. The Company's plan
addresses potential year 2000 issues related to the processing of transactions
with third parties. The possibility exists that some of the Company's external
business contacts may not be compliant. The Company has contacted its external
business contacts and continues to do so to determine their status of compliance
and to assess the impact of noncompliance to the Company. The Company is working
closely with all critical business relationships to minimize its exposure to
year 2000-related problems. It should be noted, however, that there can be no
assurance that the systems of other companies will be year 2000 compliant, or
that their conversion will be comparable with information included in the
Company's systems without having a material adverse effect on the Company.
18
<PAGE>
Although it has considered various scenarios concerning the possible
effects of the year 2000 issues, the Company does not have formal contingency
plans relating to either its internal processing environment or its external
business contacts. As it completes the upgrading and testing of non-compliant
systems and continues to monitor the status of its important external contacts,
the Company will develop contingency plans if deemed necessary for critical
systems and relationships.
A comprehensive review was performed by the Company of the insurance
policies written by its Insurance Companies and their underwriting guidelines to
determine year 2000 exposure. The Insurance Companies primarily issue policies
covering all or part of an insured's self-insured retention, with limits
generally up to $25,000, that follow the form of the policies for coverage in
excess of the Insurance Companies' policies. In some instances, the Insurance
Companies have not issued exclusions on these policies. The Insurance Companies
have also issued a number of policies with greater limits of coverage, and have
included a year 2000 exclusion on such policies. The Company is aware that year
2000 liabilities may be deemed not to be fortuitous in nature and, therefore,
not covered under the policies underwritten by the Insurance Companies.
Moreover, based upon the classes of insurance primarily underwritten by the
Insurance Companies, the Company believes that its coverage exposure with
respect to year 2000 losses will not be material. However, changes in social and
legal trends may establish coverage unintended for Year 2000 exposures by
re-interpreting insurance contracts and exclusions.
Safe Harbor Disclosure
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. This Form 10-Q or any other written or
oral statements made by or on behalf of the Company may include forward-looking
statements which reflect the Company's current views with respect to future
events and financial performance. These forward-looking statements are subject
to certain uncertainties and other factors that could cause actual results to
differ materially from such statements. These uncertainties and other factors
(which are described in more detail elsewhere in documents filed by the Company
with the SEC) include, but are not limited to, uncertainties relating to
government and regulatory policies, volatile and unpredictable developments
(including storms and catastrophes), the legal environment, the uncertainties of
the reserving process and the competitive environment in which the Company
operates. The words "believe", "anticipate", "project", "plan", "expect" and
similar expressions identify forward-looking statements. Readers are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as of their dates. The Company undertakes no obligation to publicly update
or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
The Company is a party to lawsuits arising in the normal course of
business. Virtually all pending lawsuits in which the Insurance Companies are a
party, involve claims under policies underwritten or reinsured by such
Companies. Management believes these lawsuits have been adequately provided for
in its established loss and loss expense reserves and that the resolution of
these lawsuits will not have a material adverse effect on the Company's
financial condition or results of operations.
19
<PAGE>
The Insurance Brokerage Companies are subject to various claims and
lawsuits from both private and governmental parties, which include claims and
lawsuits in the ordinary course of business. The majority of pending lawsuits
involve insurance claims, errors and omissions, employment claims, and breaches
of contract. The Company believes that the resolution of these lawsuits will not
have a material adverse effect on the Company's financial condition or results
of operations.
Item 2. Changes in Securities - None
Item 3. Defaults upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Securities Holders - None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
Exhibit
Number Description
11 Statement regarding computation of earnings per share
27 Financial Data Schedule
b) Reports on Form 8-K
On July 20, 1999, the Company filed Form 8-K reporting a partial client account
loss and that it expects a third quarter shortfall but record earnings for 1999.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KAYE GROUP INC.
---------------
Registrant
November 11, 1999 /s/ Bruce D. Guthart
------------------------------------
Bruce D. Guthart, Chairman, President and
Chief Executive Officer
November 11, 1999 /s/ Michael P. Sabanos
-----------------------------------
Michael P. Sabanos, Senior Vice President and
Chief Financial Officer
21
KAYE GROUP INC EXHIBIT 11
Earnings Per Share Calculation Page 1 of 4
For the Three Months Ended September 30, 1999
<TABLE>
<CAPTION>
<S> <C>
Shares outstanding at 12/31/98 8,474,435 (A)
Less: Net purchase of Treasury Stock (1/1 - 9/30/99) (15,307)
Plus: Shares issued on award of Restricted Stock 4,617
Plus: Shares issued on exercise of options 6,900
---------
Balance @ 9/30/99 8,470,645 (B)
Balance @ 6/30/99 8,449,890 (C)
----------
Weighted average 8,460,268 [(B)+(C)] /2
==========
</TABLE>
<TABLE>
<CAPTION>
Three months
ended
Sept.30,1999
--------------
<S> <C> <C>
Net Income $1,723,000 (1)
I. Average Shares: 8,460,268 (2)
II. Basic EPS 0.2037 (1)/(2)
=========
III. Diluted EPS
Weighted Average Shares 8,460,268 (2)
Dilution 194,841 (3)
---------
8,655,109 (4)
=========
Diluted EPS 0.1991 (1)/(4)
=========
</TABLE>
<PAGE>
KAYE GROUP INC EXHIBIT 11
Earnings Per Share Calculation Page 2 of 4
For the Three Months Ended September 30,1999
IV. Outstanding at September 30, 1999
<TABLE>
<CAPTION>
Weighted
Units Price/Share Proceeds Average Proceeds
------- ----------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C>
A. Options (8/17/93) 75,750 $ 10.000 $ 757,500
Options (1/24/94 5,000 10.910 54,550
Options (2/3/94) 500 11.630 5,815
Options (9/13/95) 15,000 7.880 118,200 15,000 118,200
Options (10/25/95) 40,200 8.430 338,886
Options (5/15/96) 10,000 7.060 70,600 10,000 70,600
Options (12/27/96) 15,000 5.000 75,000 15,000 75,000
Options (2/1/97) 35,000 5.000 175,000 35,000 175,000
Options (2/25/97) 171,350 5.060 867,031 173,350 877,151
Options (4/15/97) 200,000 5.000 1,000,000 200,000 1,000,000
Options (7/1/97) 10,000 4.970 49,700 10,000 49,700
Options (10/31/97) 15,000 8.030 120,450 15,000 120,450
Options (12/31/97) 5,000 6.640 33,200 5,000 33,200
Options (07/01/98) 10,000 6.700 67,000 10,000 67,000
Options (10/30/98) 20,000 6.170 123,400 20,000 123,400
Options (12/10/98) 24,500 6.600 161,700 24,500 161,700
Options (2/19/99) 800 7.410 5,928 800 5,928
Options (2/24/99) 40,000 7.380 295,200 40,000 295,200
------- --------- ---------- ----------
693,100 $4,319,160 573,650(5) 3,172,529
======= ========== ========== ==========
Dilutive Shares 573,650(5) 3,172,529(6)
======= ==========
</TABLE>
V. Average market value/share
<TABLE>
<CAPTION>
Average Close on
Close last day
-------- --------
<S> <C> <C>
January 7.081
February 7.352
March 7.500 7.125
-------
Hash total 3 mths 21.933
=======
April 7.058
May 7.235
June 7.547 7.500
-------
Hash total 3 mths 21.840
=======
July 8.131
August 8.642
September 8.352 8.500
-------
Hash total 3 mths 25.125
=======
/ 3
-------
Average price per share Three mths 8.375
=======
</TABLE>
VII. Diluted
Three Months
------------
Total Proceeds from exercise $3,172,529(6)
Divided by average price 8.375
Repurchase shares of 378,809
Shares issued (options) 573,650(5)
----------
Dilution - Shares (3) 194,841
==========
<PAGE>
KAYE GROUP INC EXHIBIT 11
Earnings Per Share Calculation Page 3 of 4
For the Nine Months Ended September 30,1999
<TABLE>
<CAPTION>
<S> <C>
Shares outstanding at 12/31/98 8,474,435 (A)
Less: Net purchase of Treasury Stock (1/1 - 9/30/99) (15,307)
PLUS:Shares issued on award of Restricted Stocks 4,617
PLUS:Shares issued on exercise of options 6,900
----------
Balance @ 9/30/99 8,470,645 (B)
Balance @ 6/30/99 8,449,890 (C)
Balance @ 3/31/99 8,446,435 (D)
----------
Weighted average 8,460,351[(A)+(B)+(C)+D]/4
==========
</TABLE>
<TABLE>
<CAPTION>
Nine months
ended
Sept.30,1999
------------
<S> <C>
Net Income $5,205,000 (1)
I. Average Shares: 8,460,351 (2)
II. Basic EPS 0.6152 (1)/(2)
==========
III. Diluted EPS
Weighted Average Shares 6,460,351 (2)
Dilution 161,083 (3)
----------
6,621,434 (4)
==========
Diluted EPS 0.7861 (1)/(4)
==========
</TABLE>
<PAGE>
KAYE GROUP INC EXHIBIT 1
Earnings Per Share Calculation Page 4 of 4
For the Nine Months Ended September 30, 1999
IV. Outstanding at September 30, 1999
<TABLE>
<CAPTION>
Weighted
Units Price/Share Proceeds Average Proceeds
------- ----------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
A. Options (8/17/93) 75,750 $ 10.000 $ 757,500
Options (1/24/94 5,000 10.910 54,550
Options (2/3/94) 500 11.630 5,815
Options (9/13/95) 15,000 7.880 118,200
Options (10/25/95) 40,200 8.430 338,886
Options (5/15/96) 10,000 7.060 70,600 10,000 70,600
Options (12/27/96) 15,000 5.000 75,000 15,000 75,000
Options (2/1/97) 35,000 5.000 175,000 35,000 175,000
Options (2/25/97) 171,350 5.060 867,031 175,350 887,271
Options (4/15/97) 200,000 5.000 1,000,000 200,000 1,000,000
Options (7/1/97) 10,000 4.970 49,700 10,000 49,700
Options (10/31/97) 15,000 8.030 120,450
Options (12/31/97) 5,000 6.640 33,200 5,000 33,200
Options (07/01/98) 10,000 6.700 67,000 10,000 67,000
Options (10/30/98) 20,000 6.170 123,400 20,000 123,400
Options (12/10/98) 24,500 6.600 161,700 24,500 161,700
Options (2/19/99) 800 7.410 5,928 800 5,928
Options (2/24/99) 40,000 7.380 295,200 40,000 295,200
======= ---------- ---------- ----------
693,100 $4,319,160 545,650(5) 2,943,999
======= ========== ========== ==========
Dilutive Shares 545,650(5) 2,943,999(6)
======= ==========
</TABLE>
V. Average market value/share
<TABLE>
<CAPTION>
Average Close on
Close last day
-------- -------
<S> <C> <C>
January 7.081
February 7.352
March 7.500 7.125
-------
Hash total 3 mths 21.933
=======
April 7.058
May 7.235
June 7.547 7.500
-------
Hash total 3 mths 21.840
=======
July 8.131
August 8.642
September 8.352 8.500
-------
Hash total 3 mths 25.125
=======
-------
Hash total 9 mths 68.898
=======
/ 9
-------
Average price per share Nine mths 7.655
=======
</TABLE>
VII. Diluted
Nine Months
--------------
Total Proceeds from exercise $ 2,943,999(6)
Divided by average price 7.655
Repurchase shares of 384,567
Shares issued (options) 545,650(5)
-----------
Dilution - Shares (3) 161,083
===========
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
Kaye Group Inc. Consolidated Financial Data Schedule For nine months ended
September 30, 1999 (in thousands, except per share amounts)
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<DEBT-HELD-FOR-SALE> 44,242
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 3,485
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 53,657
<CASH> 31,219
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 3,003
<TOTAL-ASSETS> 138,967
<POLICY-LOSSES> 0
<UNEARNED-PREMIUMS> 9,745
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 5,007
0
0
<COMMON> 85
<OTHER-SE> 45,073
<TOTAL-LIABILITY-AND-EQUITY> 138,967
19,733
<INVESTMENT-INCOME> 3,491
<INVESTMENT-GAINS> (96)
<OTHER-INCOME> 27,293
<BENEFITS> 6,786
<UNDERWRITING-AMORTIZATION> 6,098
<UNDERWRITING-OTHER> 1,324
<INCOME-PRETAX> 7,399
<INCOME-TAX> 2,194
<INCOME-CONTINUING> 5,205
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,205
<EPS-BASIC> 0.62
<EPS-DILUTED> 0.60
<RESERVE-OPEN> 21,567
<PROVISION-CURRENT> 7,826
<PROVISION-PRIOR> (445)
<PAYMENTS-CURRENT> 810
<PAYMENTS-PRIOR> 4,206
<RESERVE-CLOSE> 23,930
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
